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Microsoft Excel LibreOffice Calc

Delta Air Lines Inc. (NYSE:DAL)


Present Value of Free Cash Flow to the Firm (FCFF)

Intermediate level

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.


Intrinsic Stock Value (Valuation Summary)

Delta Air Lines Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel LibreOffice Calc
Year Value FCFFt or Terminal value (TVt) Calculation Present value at
01 FCFF0
1 FCFF1 = × (1 + )
2 FCFF2 = × (1 + )
3 FCFF3 = × (1 + )
4 FCFF4 = × (1 + )
5 FCFF5 = × (1 + )
5 Terminal value (TV5) = × (1 + ) ÷ ()
Intrinsic value of Delta Air Lines Inc.’s capital
Less: Debt and finance leases (fair value)
Intrinsic value of Delta Air Lines Inc.’s common stock
 
Intrinsic value of Delta Air Lines Inc.’s common stock (per share)
Current share price

Based on: 10-K (filing date: 2020-02-13).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Weighted Average Cost of Capital (WACC)

Delta Air Lines Inc., cost of capital

Microsoft Excel LibreOffice Calc
Value1 Weight Required rate of return2 Calculation
Equity (fair value)
Debt and finance leases (fair value) = × (1 – )

Based on: 10-K (filing date: 2020-02-13).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= × =

   Debt and finance leases (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= ( + + + + ) ÷ 5 =

WACC =


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Delta Air Lines Inc., PRAT model

Microsoft Excel LibreOffice Calc
Average Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Selected Financial Data (US$ in millions)
Interest expense, net
Net income
 
Effective income tax rate (EITR)1
 
Interest expense, net, after tax2
Add: Dividends declared
Interest expense (after tax) and dividends
 
EBIT(1 – EITR)3
 
Current maturities of debt and finance leases
Debt and finance leases, excluding current maturities
Stockholders’ equity
Total capital
Financial Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5
Averages
RR
ROIC
 
FCFF growth rate (g)6

Based on: 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-13), 10-K (filing date: 2016-02-05).

1 See details »

2019 Calculations

2 Interest expense, net, after tax = Interest expense, net × (1 – EITR)
= × (1 – ) =

3 EBIT(1 – EITR) = Net income + Interest expense, net, after tax
= + =

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [] ÷ =

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × ÷ =

6 g = RR × ROIC
= × =


FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × ( × ) ÷ ( + ) =

where:
Total capital, fair value0 = current fair value of Delta Air Lines Inc.’s debt and equity (US$ in millions)
FCFF0 = the last year Delta Air Lines Inc.’s free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Delta Air Lines Inc.’s capital


FCFF growth rate (g) forecast

Delta Air Lines Inc., H-model

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1
2 g2
3 g3
4 g4
5 and thereafter g5

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= + () × (2 – 1) ÷ (5 – 1) =

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= + () × (3 – 1) ÷ (5 – 1) =

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= + () × (4 – 1) ÷ (5 – 1) =